We recently attended an investment committee meeting with Timeline, our discretionary fund management partner.
We talked about how markets have been doing, how the portfolios are set up, and some new research and technology updates. These meetings help us make sure your investments are looked after and still match your goals, even when markets change. We looked at what has made investments rise or fall this year. Timeline still believes in spreading your money across the world and following a plan based on facts, not guesses.
Markets have remained resilient
This year has brought worries about politics, wars, rising prices and talk about artificial intelligence. Even with all this, global stock markets have still gone up. Timeline says markets move most when something happens that surprises people. If everyone already knows about a worry, it is usually already in the price.
Politics can change things like tax, government spending and business rules. But it is very hard to use politics to make good short-term investment choices. Over time, governments and tough times have come and gone, but companies have kept finding ways to make money for investors. That is why we do not suggest changing your long-term plan just because of news or guesses about what might happen next.
Emerging markets have performed strongly
Emerging markets did well this year. South Korea and Taiwan, for example, did well because more people want computer chips and technology for artificial intelligence.
This was good news for companies like Samsung and SK Hynix, who make technology for artificial intelligence and data centres. If you had a mix of investments from around the world, you benefited from this without needing to guess which country would do best. Timeline also pointed out a risk. Samsung and SK Hynix are a big part of the South Korean stock market. If they do well, returns are strong. But if things go wrong, losses can be bigger too. We manage this risk by spreading your investments across many countries, industries and companies. This way, your portfolio does not rely too much on any one area.
The role of bonds
Bonds have not done as well this time. People are worried about rising prices, government debt and interest rates. This has pushed up the income that new bonds pay. When new bonds pay more, the value of older bonds can fall, especially if they last a long time. This is why UK government bonds have made some portfolios grow more slowly. But the good news is that new bonds now pay more income. This could make bonds more useful for investors than they have been for some time.
Timeline still thinks bonds are important. Bonds are not meant to beat shares. They help keep your investments steady and give you a safer place to take money from if you need it. This matters even more if you are retired. If you have to sell shares after they fall, it can hurt your long-term plan. Bonds can help you avoid this.
Why Timeline prefers market capitalisation weighting
We also talked about how Timeline thinks an investment index should be built. You can do this by putting more money in bigger companies, or by giving every company the same amount. A market capitalisation index means bigger companies get more of your money. If a company grows, it gets a bigger share. If it shrinks, it gets less.
An equal weight index puts the same amount into every company, big or small. This means you have less in the biggest firms and more in smaller ones. You also have to buy and sell more often to keep things balanced.
Timeline prefers the market capitalisation way. It spreads your money out, is simple to understand, and keeps costs low. Your portfolio changes as new companies become leaders. Years ago, General Electric and Intel were on top. Now, Apple, Microsoft and Nvidia are leading. A market capitalisation index keeps up with these changes by itself. You do not have to guess which company will do best next.
How newly listed companies enter an index
Timeline also discussed how large new companies are added to global indices following an initial public offering. Most indexes only count the shares that people can actually buy and sell, not the whole company. A new company might be in the news and look very valuable. But if only a few shares are for sale, it will only be a small part of the index at first. This means the index shows what investors can actually buy. It also stops a new company from taking over the index just because it looks big.
Timeline’s ESG approach
Timeline reviewed the research supporting its ESG portfolio ranges. Timeline’s approach is to avoid some companies, invest more in those with better sustainability, and keep talking to fund managers about these issues. Timeline does not see ESG as a special type of investment or expect it to always give higher returns. The aim is to make the portfolios more sustainable, but still keep them spread out, low-cost and disciplined. Timeline found that its ESG portfolios have less money in controversial businesses, lower ESG risks, and lower carbon emissions than most of the market.
We also talked about how hard it can be to avoid certain companies. Some firms make a little money from things like alcohol or tobacco, even if that is not their main business. If you cut out every company with any link to these activities, you might also lose supermarkets or other big businesses. That is why some rules only exclude companies if a lot of their money comes from these areas.
What this means for investors
This meeting reminded us of some key ideas that guide how we invest. Markets are always uncertain. Sometimes one country or type of investment does well, sometimes another. Bonds will not always do well, but they help steady your portfolio. Do not let headlines push you into quick decisions.
Timeline’s job is to manage investments using a plan based on evidence. Our job is to make sure your portfolio still fits your goals, how long you want to invest, what returns you need, and how much risk you can take.
